The moves will lead to a hit to profits of as much as $8.5 billion, topping the $6.2 billion charges it took three years ago on a failed acquisition in digital advertising. After the disaster of the Autonomy deal, then-HP CEO Leo Apotheker was pushed out in favor of Meg Whitman, and Rich Ross quit as Disney's studio chief after "John Carter.Microsoft on Wednesday threw in the towel in its attempt to become a leading player in the smartphone world, writing down almost the entire value of its Nokia handset acquisition and announcing sweeping job cuts. There are often consequences for bad deals, however. In 2012, Walt Disney spent more than $300 million making and promoting the sci-fi movie "John Carter" - and wrote off $200 million from the film a few weeks after its release. A year later, claiming it had been duped, HP wrote off $8.8 billion of the deal. Hewlett-Packard paid $11.1 billion for UK software firm Autonomy in October 2011. In fairness, companies write off bad investments all the time. In 2012, it wrote off $6.2 billion of the investment. In 2007, it paid $6.3 billion for Acquantive, an ad services company. Microsoft has written off big investments before.A Steve Ballmer temper tantrum finally got the deal approved - and, reports say, hastened his retirement as CEO.) In other words, the stock price reflects the issues of the phone business. (And, apparently, so was Bill Gates and other members of the Microsoft board. "Microsoft has yet to prove it can successfully bring to market a compelling device that can gain meaningful traction with consumers," Barclay Capital analyst Raimo Lenschow wrote at the time. Lastly, many investors and analysts were skeptical of Microsoft's acquisition of the Nokia business when it was announced in September 2013.So, its effect on the bottom line isn't that big. The cost cuts came as Microsoft laid off 18,000 people, mostly Nokia workers, over the last year. The operating loss for the phone business has been cut from an annualized $4.5 billion to $2.5 billion, Amy Hood, the company's chief financial officer, said during last week's conference call. There may be four reasons why investors seem to be giving Microsoft a pass on the situation: Theoretically, if the prospects don't improve, a write-down might be that large. Microsoft valued the goodwill attributable to the Nokia deal at $5.24 billion at the end of March - about 24% of the total goodwill. The write-down would be taken from shareholders equity, which was $90 billion in March. Worse, the given the recent results, the 10-Q went on to say, Microsoft's phone business "is at an elevated risk of impairment." Which means the company might have to acknowledge its investment isn't worth nearly as much now as it was when closed in 2014. To quote the Microsoft 10-Q assessment of the situation, the business "did not meet its sales volume and revenue goals, and the mix of units sold had lower margins than planned." Microsoft doesn't break out operating profit for the business.Īpple, by contrast, sold 61 million iPhones in its fiscal second quarter and has sold 135 million iPhones in the first half of its fiscal year. Revenue was $6.3 billion with a gross profit of $805 million. So far this fiscal year, the total is 28.5 million Lumia devices and 107.3 million other phones. Microsoft's phone business sold 8.6 million Lumia phone and 24.7 million Window phones in the third quarter, generating $1.4 billion in revenue. The phone business? To be frank, it's looking a bit like an afterthought.
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